How Big is the “Lemons” Problem? Historical Evidence from French Wines

62 Pages Posted: 14 Sep 2019 Last revised: 23 Apr 2020

See all articles by Pierre R. Mérel

Pierre R. Mérel

University of California, Davis - Department of Agricultural and Resource Economics

Ariel Ortiz-Bobea

Cornell University

Emmanuel Paroissien

Smart-Lereco, INRA.

Date Written: April 21, 2020

Abstract

This paper provides empirical evidence on the welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses amount to more than 7% of total market value, suggesting an important role for credible certification schemes.

Keywords: asymmetric information, quality uncertainty, wine, France, appellation

JEL Classification: D82, N54, Q18

Suggested Citation

Mérel, Pierre R. and Ortiz-Bobea, Ariel and Paroissien, Emmanuel, How Big is the “Lemons” Problem? Historical Evidence from French Wines (April 21, 2020). Available at SSRN: https://ssrn.com/abstract=3444625 or http://dx.doi.org/10.2139/ssrn.3444625

Pierre R. Mérel

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States

Ariel Ortiz-Bobea

Cornell University ( email )

Ithaca, NY
United States
(607) 255-0220 (Phone)

HOME PAGE: http://ortiz-bobea.dyson.cornell.edu

Emmanuel Paroissien (Contact Author)

Smart-Lereco, INRA. ( email )

Rennes, 35000
France

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